Another Step Downward for Dollar Hegemony

On Thursday (May 1), the finance minister of Kuwait, Mustafa al-Shiwali, suggested that Gulf Cooperation Council (GCC) countries were considering an idea to abandon their long-standing US dollar pegs. This is a minor news item to be tucked away in page 20 of the financial press, which it has been – but rather emblematic of a systemic shift.

For years, Gulf countries have held US dollars as an article of faith, with an almost religious fervor. These were the same countries that considered the same action in the 1970s, and indeed it was the Kuwaiti finance minister of that time who famously asked, "Why should we sell our black gold in exchange for unguaranteed currency notes [US dollars]"?

The aftermath of the crisis in the 1970s was greater US meddling in the region, propping up friendly dictators around the region and stoking the flames of war in Iran-Iraq that culminated in Saddam Hussein marching his forces into Kuwait in 1990. Perhaps that was America’s idea of punishing the Kuwaitis, but we would never know that for sure.

Despite owing a debt of gratitude for getting their country back, it is interesting that Kuwait today is concerned more about domestic inflation that has run away to absurd levels, and less about kicking the US when it is down. Call that the new world, if you will.

The decline of dollar hegemony is the single most imporant issue facing the U.S. today, and it’s symptomatic of the unreal nature of our political system that it is never discussed, even in the presidential campaign.